Tax domicile confusion causes problems for UK expats

Published:  28 Jul at 6 PM
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International tax laws are now so complicated that even well-meaning Britons living long-term overseas can be caught in an expensive trap.

A report by a financial services and insurance provider has highlighted a potential problem of which many long-stay UK expatriates may not even be aware – that of domicile of choice as against domicile of origin.

One recent UK tax tribunal case brought by HMRC illustrates the point, in that the family was attempting to save their late father’s estate from being subject to tax determinations. Briefly, they were hoping to prove the father was domiciled in Brazil, as he was born while his father was living and working there in the 1930s.The British grandfather had not declared Brazil as his domicile of choice, so was considered to have the UK as his domicile of origin, which also applied to his son. As a result, the family lost the case, with the judge ruling the tax office’s demands were legal and must be paid.

Recent research by the same financial firm indicates two thirds of expats surveyed believed they were non-domiciled as well as non-resident, but in fact were wrong in their belief, even although they may have no longer held any assets in the UK. One major point apparent from the survey was that 81 per cent of those questioned believed they would probably return permanently to the UK at some point as they still held assets there.

This would mean they are likely to be judged as domiciled for tax purposes, which include inheritance tax on death on all assets held anywhere in the world. HMRC’s conditions are clear, in that to be considered non-domiciled for tax purposes, all ties with the UK must be cut, and there must be no intention to ever return.

Britons are UK domiciled from birth, but only settling permanently overseas can change their status. Those claiming to be non-domiciled following an inheritance must be able to prove it should HMRC step in to claim the tax from the beneficiaries.
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